SINGAPORE (Jan 29): Investors are finding value in Sasseur Real Estate Investment Trust (Sasseur REIT), after a kneejerk reaction to the temporary closure of its four retail outlet malls in China saw the counter plunge more than 10% on Tuesday.
In response to the outbreak of the deadly Wuhan coronavirus, the REIT manager on Tuesday announced that sponsor Sasseur Cayman Holding has implemented the temporary closure of the four outlet malls owned by Sasseur REIT in Chongqing, Bishan, Hefei and Kunming.
See: Sasseur REIT shutters all 4 outlet malls in China until further notice amid Wuhan virus outbreak; shares plunge 10% on opening
“We wanted to do this because it was something that’s important given the circumstances,” Anthony Ang, CEO of the REIT manager, tells The Edge Singapore in a phone interview. “We should all do our bit in times of crisis.”
Sasseur REIT highlighted that the local authorities have not imposed any regulations to direct the closures of the malls. However, the group says it has decided to temporarily close the malls as a precautionary measure “after careful consideration”.
And according to Ang, the reaction to this move has been positive.
See: Wuhan coronavirus fears send Singapore stock market into turmoil, but the worst is far from over
“Customers are saying they are quite happy this is done and are keen to come back soon to the mall once it’s opened,” Ang says. “This closure is temporary, and we don’t want to talk about reopen date… hopefully we reopen in days rather than weeks.”
Compared to the previous year, he notes that the malls had been doing “very well” in terms of sales.
According to the manager, its “unique business model” gives the REIT “very good stability in terms of protecting unitholders”.
Under Sasseur REIT’s Entrusted Manager Agreement (EMA), 70% of income is guaranteed and 30% is linked to sales.
So while distribution per unit is expected to be lower year-on-year for 1QFY2020, the impact is largely mitigated.
See: Singapore confirms first case of Wuhan virus. Here's what investors need to know
The way DBS Group Research analyst Derek Tan sees it, Sasseur REIT’s move to temporarily close its four retail outlet malls in China was a “bold and courageous” one.
The brokerage is maintaining its “buy” call on the counter. “[We] see this as a good opportunity to accumulate on the dip,” Tan says.
“EMA income structure will limit the downside exposure of DPU to tenant sales, while the malls closure will translate to lower operational expenses,” he notes. “Managers shared that financial impact should not be material given the business model of Sasseur REIT.”
At the same time, Tan points out that apart from the Chinese New Year period, another key event to look out for is Sasseur’s Annual Spring Sales, which usually take place in March.
“Hopefully the mall will reopen by March, in time for the Annual Spring Sales,” Tan says. “Seasonality wise, Q1 and Q3 are usually the stronger quarters for Sasseur’s tenant sales.”
As at 1pm on Wednesday, units in Sasseur REIT are trading up 2.5%, or 2 cents higher, at 80.5 cents.
